In exchange, investors must agree not to sue the business after
it disclosed that it was under investigation by multiple states
for selling insurance without a license, and it
openly accused its founder, ex-CEO Parker Conrad, of
writing a computer program used by employees to "circumvent
a state licensing requirement," as Sacks puts it.

Sacks was the COO at the time and also an investor who had put in
millions of dollars of his money. But he says that he had no idea
about this program. As soon as he found out, he took action,
Conrad resigned, and has been cleaning everything up ever since.

Because this agreement will also dilute common shareholders,
including employees, Zenefits is giving workers more
shares so they are "trued up" through a special stock grant
that fully vests in one year. This is a grant, not stock options,
so employees won't have to worry about an underwater strike
price. Their percentage of the company will essentially be
unchanged.

Sacks says that the executives will get new four-year grants,
except for himself and cofounder Laks Srini, who are forgoing the
extra shares to make sure that there are enough shares for
everyone else. That means that Sacks will see his stake reduced
through dilution.

Several large investors have already agreed to this,
including Fidelity, TPG, Andreessen Horowitz, and Insight
Venture Partners, and Sacks says that all shareholders will be
offered the agreement soon.

But there's one exception: The $10 million of stock that
Conrad personally sold to investors to cash out some of his
equity as part of that C round. Zenefits isn't offering them this
deal and they don't have to give up their right to sue, Sacks
says, adding, "I hope that issue will be resolved in the
near future."

Zenefits is a private company and doesn't have to freely
air its dirty laundry like this agreement. But because Zenefits'
troubles became so public, Sacks is also being
extremely candid about the things he's doing to resolve
them.

Here's the full emailed statement Sacks sent to investors
and employees:

"SUBJECT: Investor Settlement

"As you all know, I became CEO of Zenefits in February after it
was discovered that the previous CEO/founder had written a
software program (or 'Macro') that was widely disseminated in the
company to circumvent a state licensing requirement. He resigned,
the Board asked me to step in, and since that time, we have been
working to remediate the situation and reset our relationships
with all of our key stakeholders. These include regulators,
industry partners, customers, employees and investors.

"Our efforts have included self-reporting the Macro issue,
bringing our licensing into compliance, changing our leadership
and governance, instituting new company values, and transforming
the culture so that compliance is a top priority. We announced
plans with Salesforce to open-source our licensing controls so
the rest of the industry could benefit from our technology. We
also offered a generous voluntary separation package ('The
Offer') for any employee who did not agree with the new
direction. I'm proud that roughly 90% of employees chose to stay
and re-commit to the new Zenefits.

"Today we are announcing something similar for our investors.
Since shortly after becoming CEO, I have been in discussions with
a number of our major investors about how we can reset our
relationship in light of the fact that they (like I) were never
informed about the Macro before investing in the company. We have
been working on a new basis on which they can re-commit to the
company and get fully aligned with the new Zenefits. We are
announcing that agreement today.

"This agreement will increase the ownership of our Series C
investors, who invested approximately $500 million in May 2015,
from about 11% of the company to about 25%. This effectively
revalues the Series C at a $2 billion valuation. The Series A and
Series B investors will receive small adjustments to offset their
dilution. The common stock will be diluted about 20% from its
current level -- about the same as a typical financing round. In
my view, that is well worth it to realign our existing
shareholders with the company. At some point, this company will
want to sell its shares again, and future prospective
shareholders will look closely at how we treated our current
shareholders.

"We do not want employees to be negatively impacted by this
agreement. So each non-executive employee of Zenefits will be
'trued up' through a special stock grant equal to 25% of their
current number of shares. This new grant will vest 100% in 12
months. It will consist of RSUs rather than options so that
employees don't have to pay a strike price. Our executive team
will also receive additional 4-year grants to incentivize them.
However, co-founder/CTO Laks Srini and I have offered not to
participate in this true-up in order to ensure that there are
enough shares for employees. We will be diluted to the same
extent as any other common stockholder.

"As part of this agreement, each participating investor will sign
a release, which will allow the company to move forward and put
the past behind us. This agreement does not include a release for
the $10 million of stock that Parker sold personally; I hope that
issue will be resolved in the near future.

"The agreement also contains a few provisions to foster good
governance, such as the creation of a permanent seat for the
Series C on the Board of Directors (which is already occupied by
TPG's Bill McGlashan) and the creation of a Compliance Committee
on the Board. Both the company's management and its investors
believe these are wise things to do.

"The investor agreement has already been approved by a number of
the company's major investors including Fidelity, TPG, Andreessen
Horowitz, and Insight Venture Partners. We will be offering it to
all our investors shortly.

"I want to thank our investors for reaffirming their confidence
in us. We take our commitment to you seriously to build value for
all shareholders. As a result of The Offer and Investor
Settlement, all of our employees and investors will be aligned,
committed, and focused on what's next, which is the launch of Z2
in October.